One of our certificate of deposit (CD) account customers died seven years ago. The CD was payable on death (POD) to her grandson. However, the signature card for the CD stipulates that it is not to be paid out until he turns twenty-one, and he has not yet turned twenty-one. Can we swap out the deceased customer’s social security number for the grandson’s social security number? The beneficiary’s mother now is demanding that we release the CD funds to her, and the executor would like to close the customer’s estate.

Simply replacing the original accountholder’s social security number with the beneficiary’s social security number would not fulfill your customer’s intent, which was to wait until the beneficiary turns twenty-one before distributing the CD's proceeds. In general, the Illinois Trust and Payable on Death Accounts Act (“POD Act”) requires that POD accounts be distributed to beneficiaries on the death of the last surviving accountholder, but this general rule can be altered by an agreement between a bank and its customer.

However, we do not recommend retaining the account under your deceased customer’s social security number indefinitely. When the holder of an interest-bearing account has died, the IRS requires that interest paid after the death be reported under either an estate tax number or a beneficiary’s social security number. Continuing to report interest under a deceased individual’s social security number is not an option.

Because the grandson’s mother already has made a demand for the CD's funds, we believe the most prudent path would be to require a court order before taking any action. When there are conflicting claims on a POD account, the POD Act permits the depository institution to “refuse to distribute the proceeds, without liability to any beneficiary or other party, until the institution receives a determination of ownership by a court of appropriate jurisdiction.” We recommend relying on this provision in this case and requiring a court order before making any distributions. The court either would order the creation of a custodial account or other arrangement to honor your deceased customer’s intent, or it would order your bank to distribute the CD's funds immediately to the grandson.

For resources related to our guidance, please see:

IRS Publication 559, Personal Representative Duties (“Payers of interest and dividends report amounts on Forms 1099 using the identification number of the person to whom the account is payable. After a decedent’s death, Forms 1099 must reflect the identification number (EIN, ITIN, or SSN) of the estate or beneficiary to whom the amounts are payable.”)
IRS Publication 559, Interest and Dividend Income (“Form(s) 1099 reporting interest and dividends earned by the decedent before death should be received and the amounts included on the decedent's final return. A separate Form 1099 should show the interest and dividends earned after the date of the decedent's death and paid to the estate or other recipient that must include those amounts on its return.”
Illinois Trust and Payable on Death Accounts Act, 205 ILCS 625/4 (“If one or more persons opening or holding an account sign an agreement with the institution providing that on the death of the last surviving person designated as holder the account shall be paid to or held by one or more designated beneficiaries, the account, and any balance therein which exists from time to time, shall be held as a payment on death account and unless otherwise agreed in writing between the person or persons opening or holding the account and the institution: . . .Upon the death of the last surviving holder of the account, the beneficiary designated to be the owner of the account . . . If no beneficiary designated as the owner of the account on the death of the last surviving holder is then living or in existence, the proceeds shall vest in the estate of the last surviving holder of the account.”)
Fairfield Nat’l Bank v. Chansler, 368 Ill.Dec. 142, 148 (5th Dist. 2013) (“[T]he few precedents interpreting the Act have found that the policy behind the statutory scheme is to effectuate the intent of the holder.”)
Illinois Trust and Payable on Death Accounts Act, 205 ILCS 625/10 (“Upon the death of the last surviving trustee or holder of the account, the institution that maintains the account shall distribute the proceeds to the beneficiary or beneficiaries designated in the agreement controlling the account without further liability. . . . If the institution, in its discretion, is unable to identify one or more beneficiaries, or cannot determine the lawful existence of any beneficiary, or cannot determine a party authorized to collect on behalf of any beneficiary, or if conflicting claims to the account are made by the beneficiaries or other interested parties, then the institution may refuse to distribute the proceeds, without liability to any beneficiary or other party, until the institution receives a determination of ownership by a court of appropriate jurisdiction.”)